Responding to Banking Crises: Lessons From Cross-Country Evidence

January 1, 2010

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Format: Chicago

Enrica Detragiache, and Giang Ho. Responding to Banking Crises: Lessons From Cross-Country Evidence, (USA: International Monetary Fund, 2010) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A common legacy of banking crises is a large increase in government debt, as fiscal resources are used to shore up the banking system. Do crisis response strategies that commit more fiscal resources lower the economic costs of crises? Based on evidence from a sample of 40 banking crises we find that the answer is negative. In fact, policies that are riskier for the government budget are associated with worse, not better, post-crisis performance. We also show that parliamentary political systems are more prone to adopt bank rescue measures that are costly for the government budget. We take advantage of this relationship to instrument the policy response, thereby addressing concerns of joint endogeneity. We find no evidence that endogeneity is a source of bias.

Subject: Banking, Banking crises, Crisis management, Crisis resolution, Financial crises, Fiscal policy

Keywords: Bank rescue policy, Bank support policy, Banking crises, Banking crisis cost, Banking crisis policies, Bank-support policy, Blanket government guarantee, Countercyclical policy tool, Crisis management, Crisis performance, Crisis resolution, Crisis resolution policy, Crisis response policy, Global, Output growth, Policy index, Policy measure, Policy response, Policy response index, Resolution policy, Response index, WP

Publication Details

Pages:

33
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/018
Stock No:

WPIEA2010018
ISBN:

9781451962239
ISSN:

1018-5941

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